martedì 7 luglio 2009

Proposition pour gérer une crise bancaire systémique

Proposition pour gérer une crise bancaire systémique

par Bernard Lietaer, Places to be, Juin 2009

La crise bancaire en cours résulte non pas seulement d’un problème cyclique ou d’un échec de gestion, mais d’un problème structurel. En effet, il y a eu plus de 96 autres crises bancaires majeures au cours des vingt dernières années et de pareilles crises sont apparues aussi bien dans le cadre de systèmes régulateurs très différents que dans des stades très différents de développement économique.
Il y a un besoin urgent de trouver de nouvelles solutions, car la dernière fois que nous avons été confrontés à un écroulement du système de cette ampleur, la Grande Dépression des années 30, nous l’avons « résolu » avec une vague de fascisme et la Seconde Guerre mondiale. Toutefois, jusqu’à présent seules des solutions conventionnelles sont considérées – la nationalisation des avoirs problématiques (comme dans le plan de sauvetage original de Paulson) ou la nationalisation des banques (comme en Europe) – et ne s’attaquent qu’aux symptômes, et non aux causes systémiques de la crise bancaire actuelle. De même, les régulations financières qui seront à l’agenda politique ne pourront dans le meilleur des cas que réduire la fréquence de telles crises, mais ne pourront pas empêcher qu’elles ne se répètent pas dans le futur. Enfin, les divers « plans de relance » traitent cette crise seulement comme si c’était un problème purement cyclique.
La bonne nouvelle est qu’une compréhension systémique et une solution concrète sont disponibles actuellement, lesquelles assureraient que de telles crises soient reléguées au passé. Une avancée conceptuelle récente, vérifiée quantitativement sur des écosystèmes réels durables fonctionnant à un haut niveau, prouve que tous les systèmes en réseaux complexes – y compris nos systèmes monétaires et financiers – deviennent structurellement instables chaque fois que l’on donne une place exagérée à l’efficacité aux dépens de la diversité et de l’interconnectivité, et de la résiliance cruciale que ces deux variables structurelles fournissent. L’insight systémique surprenant est qu’une viabilité durable requiert une diversification de nos monnaies et de nos institutions monétaires, c’est-à-dire que l’on en introduise de nouvelles destinées spécifiquement à accroître la disponibilité de l’argent dans sa fonction première de moyen d’échange, plutôt qu’en tant qu’objet d’épargne ou de spéculation. De plus, ces monnaies sont expressément destinées à établir des liens entre des ressources inutilisées et des besoins non satisfaits dans une communauté, région ou pays. Ces monnaies sont appelées « complémentaires » parce qu’elles ne remplacent pas les monnaies nationales conventionnelles, mais plutôt qu’elles opèrent en parallèle avec celles-ci. [continue]

L'enciclica sociale Caritas in veritate

Alla vigilia dei G8, papa Ratzinger pubblica una lunga riflessione sui temi economici
Critica all'Onu: burocratico. E alle Ong che "sostengono pratiche abortiste"

L'enciclica sociale Caritas in veritate
"Lavoro decente per tutti. No al precariato"


L'enciclica sociale Caritas in veritate "Lavoro decente per tutti. No al precariato"

Benedetto XVI firma l'enciclica Caritas in veritate

ROMA - Si intitola Caritas in veritate la nuova enciclica di papa Ratzinger, pubblicata alla vigilia del G8, tutta incentrata sui grandi temi posti dalla globalizzazione dell'economia e dei suoi effetti sulla vita delle persone. 127 pagine: un'analisi economica e sociale sul XXI secolo e un richiamo etico per rendere meno ingiusto il futuro. Ripendendo le tematiche sociali contenute nella Populorum progressio scritta da Paolo VI nel '67, 20 anni dopo l'ultima encilica sociale di Giovanni Paolo II, la Centesimus Annus, la terza enciclica di Benedetto XVI approfondisce alcuni aspetti dello sviluppo economico integrale alla luce della "carità nella verità".

La sfida: "Lavoro per tutti". Papa Benedetto XVI lancia una sfida al mondo: "Serve garantire a tutti l'accesso al lavoro, e anzi: a un lavoro decente. Bisogna rafforzare e rilanciare il ruolo dei sindacati, combattere la precarizzazione e - a meno che non comporti reali benefici per entrambi i Paesi coinvolti - la delocalizzazione dei posti di lavoro". Papa Ratzinger non nega che, in linea di principio, la "delocalizzazione, quando comporta investimenti e formazione, possa fare del bene alle popolazioni del paese che la ospita". Ma, ricorda, "non è lecito delocalizzare solo per godere di particolari condizioni di favore, o peggio per sfruttamento".

"Serve un'economia etica". Come aveva già annunciato nella lettera inviata a Silvio Berlusconi in qualità di presidente dei G8, il Pontefice invita ad improntare l'economia mondiale ai criteri etici: "Non di un'etica qualsiasi, bensì di un'etica amica della persona".

"I pericoli della povertà". Il Pontefice è preoccupato per l'aumento del divario tra poveri e ricchi: "La povertà ha un impatto negativo sul piano econonomico e mette a rischio la democrazia''. E' una finanza senza etica ad aver fatto deragliare l'economia reale, provocando l'attuale crisi economica mondiale, spiega il Papa.

"Rispettate i migranti". Benedetto XVI non dimentica gli immigrati che "recano un contributo significativo allo sviluppo economico del Paese ospite con il loro lavoro, oltre che a quello del Paese d'origine grazie alle rimesse finanziarie". Ebbene i migranti, scrive il Pontefice, "non possono essere considerati come una merce o una mera forza lavoro. Non devono essere trattati come qualsiasi altro fatto di produzione.
Servono politiche di cooperazione internazionale".

"No all'eugenetica". Un capitolo dell'enciclica è ricervato alla denuncia della "sistematica pianificazione eugenetica delle nascite". Le biotecnologie, l'aborto, l'eutanasia, la clonazione sono segni di una "cultura di morte sempre più diffusa che apre scenari inquietanti per il futuro dell'umanità". Per Papa Ratzinger, ''stupisce'' che da una parte si condanni il degrado sociale ed economico, e dell'altra si tollerino ''ingiustizie inaudite'' in campo bioetico.

"Onu e Ong costose e burocratiche". Il Pontefice conferma i no della Chiesa all'aborto talvolta promosso da organismi dell'Onu nei Paesi più poveri. In varie parti del mondo, avverte Benedetto XVI, c'è "il fondato sospetto che gli aiuti allo sviluppo vengano collegati al controllo delle nascite". Accuse pesanti, che il Pontefice rivolge anche alle organizzazioni umanitarie: "Capita talvolta che chi è destinatario degli aiuti diventi funzionale a chi lo aiuta e che i poveri servano a mantenere in vita dispendiose organizzazioni burocratiche". L'indice è puntato contro l'Onu e le Ong, a cui chiede maggiore trasparenza.

Pronte 600.000 copie. Per lanciare in Italia la terza enciclica papale (le precedenti trattavano di politica e Chiesa, Deus caritas est del 2006 e Spe salvi, pubblicata l'anno successivo, centrata sul rapporto scienza e fede), sono state stampate già 600 mila copie in otto lingue: italiano, inglese, francese, spagnolo, tedesco, portoghese, polacco e latino.

(7 luglio 2009)

Obamageddon is Coming!

Obamageddon is Coming!

4 minute video - Posted July 06, 2009

Food riots, tax protests, strikes and high unemployment all will characterize our economic future according to Gerald Celente.

In Ithaca We Trust : Time vs Money

In Ithaca We Trust : Time vs Money


As the US sits in virtual Chapter 11 bankruptcy, people everywhere are turning to alternative ways to make ends meet. In Ithaca, NY, the local community has adopted ‘Ithaca Hours’ (http://www.ithacahours.org) as a ‘local currency system that promotes local economic strength and community self-reliance.’ As the Hours Board of Directors explain, ‘Ithaca Hours help to keep money local, building the Ithaca economy. It also builds community pride and connections.’ Several local businesses now ‘accept Ithaca HOURS for goods and services,’ as well as ‘several local employers and employees’ too, ‘who have agreed to pay or receive partial wages in Ithaca Hours’ even.

The ‘currency’ is based on the idea that YOUR ‘time’ actually has a monetary value, so you can ‘trade’ time instead of actual ‘capital.’ But ‘
unlike (conventional) US Dollars, when you spend an HOUR you know it is going to stay in your community, keep circulating, supporting your economy and maybe even end up right back in your pocket. And also unlike (standard) US Dollars this is your system.’

Finally, the revolution is getting organized!

They Don't Really Care About Us

YouTube - Michael Jackson - They Don't Care About Us

4 min 33 sec

Classificato con 4,9 su 5,0


Here's the prison version of the controversial Michael Jackson song "They Don't Care About Us".
www.youtube.com/watch?v=nvWMLAWrEjU

Mafia spa

Postato da Beppe Grillo, 5 Luglio 2009

Mafia spa

mafiaspa.jpg

Un ministro della Repubblica Italiana, Lunardi, disse che con la mafia bisogna convivere. Ma per convivere con qualcuno o con qualcosa bisogna prima definire cos'è. E cosa sono le mafie oggi? Di quanti parlamentari, sindaci, assessori dispongono? Le mafie fanno eleggere i loro uomini democraticamente in Parlamento. Sono presenti nei consigli di amministrazione delle banche, delle grandi industrie, delle società immobiliari. Ovunque ci sia la possibilità di riciclare centinaia di miliardi di euro.
In un anno le mafie italiane producono un fatturato di 130 miliardi di euro (stima 2003). Il 70% è profitto, possono reinvestire quasi 100 miliardi all'anno. Comprare ciò che vogliono, chi vogliono. La vita e la morte di un uomo.Trasformare il loro denaro in attività all'apparenza rispettabili. Il PIL delle mafie italiane è superiore a quello dei medi Stati del mondo. Più di quello della Croazia o della Romania. Le mafie sono il più importante e sicuro datore di lavoro (pagano sempre) nel Sud. Grazie alle mafie vivono in modo diretto o indiretto il 27% dei calabresi, il 12% dei campani, il 10% dei siciliani (*). Chi ti dà il pane quotidiano, in mancanza di alternative, diventa il tuo padrone. Le mafie sono la più importante industria del Paese e il primo datore di lavoro nel Mezzogiorno.
Al fatturato diretto delle mafie va aggiunto il fatturato ottenuto dai loro investimenti attraverso il riciclaggio. Nell'ultimo decennio, la somma dei profitti è stata pari a circa 1.000 miliardi di euro. Quanto rendono 1.000 miliardi di euro riciclati in termini politici, finanziari, di influenza sul Governo? E' necessario capire se esiste ancora un confine, e qual è, tra mafie e Stato, tra economia "pulita" e economia mafiosa. Se esiste ancora un'economia "pulita". Se l'economia di uno Stato può sopravvivere senza la partecipazione dei capitali mafiosi. Se è lo Stato a dover convivere con le mafie, o le mafie con lo Stato. Se lo Stato è diventato mafioso dentro, o le mafie sono diventate governative, tutrici del'ordine costituito. Mangano eroe insieme a Borsellino nel Pantheon della Patria. Andreotti senatore prescritto a vita per mafia e per meriti di governo.
I soldi non sono democratici, chi li ha comanda nelle democrazie capitaliste e oggi li hanno le mafie. Dobbiamo domandarci se esiste ancora qualcosa che non sia definibile come mafioso. Se dalla convivenza con le mafie si sia passati a una lenta integrazione che diluisce e inghiotte tutto e tutti.
(*) Dati tratti dal libro "Mafia Pulita" edito da Longanesi

Caffè, l'umanista

Intervista a Paolo Leon
Caffè, l'umanista
di Stefano Iucci

L’attualità di un economista senza tempo come Caffè: il suo insegnamento per un’epoca con poche certezze – anche in economia – come la nostra. Su questi temi abbiamo ascoltato Paolo Leon, professore di Economia pubblica all’Università di Roma Tre. A partire da una constatazione: che alcune sue idee – lo Stato come responsabile della piena occupazione, il mercato come creazione umana e, dunque, il dovere da parte della “cosa pubblica” di intervenirvi – suonerebbero come eresie ai social-liberisti di oggi. “Certamente è così – risponde Leon –. Devo però ricordare che Caffè pensava a correggere, non a rovesciare il mondo. A differenza dei riformisti di oggi, non voleva che ci adeguassimo alla filosofia del mercato, che considerava aggressiva ed egoistica. Allo stesso tempo, pensava che le riforme sociali fossero anche quelle che liberavano l’uomo dal bisogno e dalla soggezione. La piena occupazione – e perciò un obiettivo “laburista” – era per lui la miglior garanzia per questa liberazione. Non riteneva, tuttavia, che l’individuo non contasse. Anzi, dava a ciascuno il compito di operare per quella liberazione. Era talmente consapevole che il mercato fosse necessario, ma che dovesse essere continuamente corretto, che considerava superficiali teorie economiche come il monetarismo. Profondamente convinto del pensiero keynesiano, sapeva che la moneta non era un “velo”. In fondo, e proprio perché negli anni settanta prende piede la politica economica monetarista, Caffè fu uno dei primi che capì quanto sconvolgente fosse, per la giustizia sociale, adeguarsi alle regole di Milton Friedman.

Il Mese Che idea aveva Caffè del sindacato?

Leon In genere, per gli economisti di oggi il sindacato è poco meno di una lobby che esercita un indebito potere monopolistico su una merce (la forza lavoro): perciò se il sindacato viene rimosso, il benessere sociale aumenta. Per Caffè non era così: senza sindacato il mercato non retribuirebbe mai il lavoro sulla base della produttività, ma solo sulla base della sussistenza. Domandiamoci, ad esempio, come avrebbe reagito al pacchetto Treu o alla Legge Biagi, con il loro portato di precarietà, ma anche di piena (o massima) occupazione. La sua concezione della giustizia sociale avrebbe apprezzato forse una flessibilità in entrata, ma avrebbe condannato la piena occupazione precaria, anche perché costruita con lo scopo di ridurre il potere sindacale.

Il Mese Si parla spesso a proposito di Caffè di un economista umanista. Non è un modo per ridurre la portata del suo pensiero economico?

Leon No. Anche Keynes era un appassionato d’arte e riteneva che non si trattasse di semplice produzione di merce per il godimento personale. L’idea che la cultura sia un gioco per ricchi appartiene a molti economisti. Invece, Caffè faceva parte della scuola di public finance, non di quella di public choice: e solo la prima considera che esistono beni collettivi (comunitari) che il mercato non salvaguarderebbe.

Il Mese Di recente lei ha insistito sull’importanza del concetto di equità nel pensiero di Caffè, sottolineandone le differenze con le politiche del centro-sinistra che è oggi al governo. In cosa consiste nello specifico questa distanza?

Leon Egli fu tra i primi che capì l’innovazione di Beveridge e la politica dello Stato sociale universale dei laburisti di Attlee, nell’immediato dopoguerra. Non è un caso che un liberale ispiri un laburista. La cosa interessante è che, da questa interconnessione, non nasce il liberalsocialismo, che ha una base economica tradizionale e non deriva in alcun modo dal pensiero keynesiano. Nasce, invece, il nuovo socialismo (Dahrendorf non ha mai capito questo lato del secolo socialdemocratico), per il quale lo Stato sociale non ha natura redistributiva, non è creato per dare una mano ai poveri, ma è la struttura che rende effettiva la democrazia. Lo Stato sociale universale libera l’uomo dal ricatto del bisogno e lo aiuta a realizzare la propria personalità: salute, istruzione, reddito per gli anziani e i disoccupati sono le basi di questa liberazione. Non si tratta di beneficenza pubblica, sostituto laico della carità religiosa. Non è la rappresentazione di uno Stato etico – come il fascismo e il nazismo, che pure praticano lo Stato sociale – ma la trasformazione di una concessione dal potente al debole in un diritto del debole. Questa impostazione rende obbligatoria l’imposta progressiva: ché se il ricco dovesse pagarsi la salute, non si vede perché dovrebbe anche pagare un’imposta progressiva. Ora, il centrosinistra ha da tempo perduto la chiarezza di questa impostazione, e si arrabatta a far pagare un “contributo” ai pazienti, agli anziani (la pensione complementare) e, in forme diverse, anche ai disoccupati (il workfare), mettendo così a rischio la sua legittimità a governare. Caffè aveva quella concezione dello Stato sociale, non questa.

(www.rassegna.it, Il Mese, 16 maggio 2007)

lunedì 6 luglio 2009

Geneva Sees Opportunity in Bern’s Concessions

Geneva Sees Opportunity in Bern’s Concessions on Bank Secrecy

By Stephanie Baker and Warren Giles

July 2 (Bloomberg) -- On a hot Saturday morning in May at the Rolle yacht club on Lake Geneva, Guy de Picciotto, chief executive officer of Switzerland’s Union Bancaire Privee, smears on sunblock as he rallies a professional, lycra-clad crew of six to race his 35-foot, $600,000 catamaran.

“It wouldn’t do to look too tanned on Monday morning,” de Picciotto, 49, says with a grin, before jumping on a high- powered launch that takes him out to his sailboat, Zen Too, one of 12 identical carbon-fiber yachts moored offshore.

De Picciotto’s superlight catamaran accelerates toward the starting line in the light wind, which fades and then dies, leaving the yachts adrift in the heat. Still, the sailors, including Swiss biotechnology billionaire Ernesto Bertarelli, 43, a two-time Americas Cup champion, revel in their sport.

“I don’t have the weight of the bank when I’m out sailing,” de Picciotto says. “These are toys. It’s my leisure.”

De Picciotto and his fellow Geneva bankers were never more in need of stress reduction. Their world -- which converges on the city’s yacht club, the pistes of Verbier and golf in the hills above Geneva -- was shattered by the 2008 market crash and worldwide recession.

The banks’ “relationship managers” are working overtime to assuage angry clients and win new ones, while the risk managers are backing away from their bets on volatile stocks and derivatives.

A refuge for the world’s nervous money, Swiss banks are stumbling. Total assets held on behalf of foreign clients dropped more than 1 trillion Swiss francs ($918 billion), to 2.1 trillion francs, from the end of 2007 to March 2009, according to the Swiss National Bank.

$8.8 Billion Madoff Hit

In addition to getting hit by plunging markets, de Picciotto’s UBP, which manages 100 billion Swiss francs, lost $700 million in Bernard Madoff’s Ponzi scheme. Geneva wealth managers and their funds of hedge funds account for about $8.8 billion of the losses in the $65 billion Madoff swindle, according to the Geneva Financial Center, a foundation that promotes the city’s banking industry.

Not all of the news was bad in Geneva’s banking quarter, where banks and money managers are clustered near the Rue du Rhone. While assets at all of the banks declined due to market losses, some private banks, including Lombard Odier, Mirabaud & Cie. and Pictet & Cie., are picking up new clients who have pulled money out of firms that have been propped up with government subsidies, such as Citigroup Inc., Royal Bank of Scotland Group Plc and UBS AG.

UBS vs. IRS

Zurich-based UBS was hit hard by losses on investments in U.S. subprime housing loans and last year was given a $45 billion government aid package.

Investors have yanked some 130 billion francs out of UBS’s main wealth management unit since the beginning of 2008. The bank is battling the U.S. Internal Revenue Service, which is seeking information on the Swiss accounts of 52,000 American clients.

The Geneva-based banks are selling themselves to flustered investors as safe havens. Some are unlimited liability partnerships, which means the partners bear personal responsibility for losses. Pictet alone banked 17 billion francs in net new deposits in 2008, of which 7 billion francs arrived in the fourth quarter, as wealthy clients panicked after the collapse of Lehman Brothers Holdings Inc.

While UBS bled assets, most of the Geneva-based private banks had net inflows of money, according to data compiled by Bloomberg.

Partners Assume Risk

“Clients face people who risk their entire fortune every day,” says Patrick Odier, who last year became senior partner of Lombard Odier, which was founded by his family six generations ago. “Other firms can go through Chapter 11 and their executives can still keep their chalets. If our people make mistakes, our partners assume it to our very last cent.”

Having survived the market crash, Geneva’s bankers have shifted their focus to their second-highest priority: keeping their account information secret, or, as the bankers prefer to phrase it, protecting the privacy of their clients’ financial information. A decade after other nations pressured Switzerland into tightening anti-money laundering rules, governments around the world are once again targeting offshore centers in a campaign to expose wealthy tax cheats.

Switzerland, a repository for 27 percent of the world’s offshore wealth, is their top target. (Offshore is the industry term for deposits from any foreign country.) And the Swiss government has buckled.

Tax Concession

In March, a month after UBS paid $780 million to the U.S. government to defer criminal charges that it facilitated tax fraud, Swiss President and Finance Minister Hans-Rudolf Merz announced Swiss banks would, for the first time, cooperate with foreign governments looking for tax evaders, if specific information is presented showing they’re using a Swiss account for that purpose.

“The era of banking secrecy is over,” world leaders meeting in London at the Group of 20 summit in April declared in a press release.

Not so fast, the Geneva bankers say. They’ve been pushing back against the attack on their industry, charging that it’s all a grab for their assets by envious bankers in other countries and government bureaucrats eager to bolster enfeebled treasuries.

‘An Economic War’

“We are in an economic war,” says Yves Mirabaud, the 43- year-old managing partner of Mirabaud & Cie., a Geneva-based private bank founded by his ancestors in 1819, as he pauses over a plate of filet mignon in a Mirabaud dining room with a view of the snowcapped Alps and the 19th-century Grand Theatre de Geneve. “Switzerland is a small country not supported by others, so we are an easy target. The big countries want to take market share, wherever it is.”

The global assault on bank secrecy has reinforced the Swiss feeling that the tiny nation is under siege by the big powers, says Stephane Garelli, a professor at the IMD business school in Lausanne.

“They don’t like to be bullied,” Garelli says.

Proudly neutral Switzerland (population 7.6 million) didn’t join the United Nations until 2002 and doesn’t belong to the European Union or the North Atlantic Treaty Organization. Military service is compulsory, giving the country a standing militia of 220,000. By law, every Swiss resident must have access to a nuclear bunker, at home or in the neighborhood.

Swiss private bankers like Mirabaud have come out of their professional bunkers to defend the secrecy laws, which make it a crime for a banker to divulge a client’s financial information to a foreign tax authority or even to the Swiss government.

Bank Secrecy Law

A banker can go to jail for up to three years for revealing bank secrets. In a case of negligence, such as an accidental leaking of information, the penalty is a fine of as much as 250,000 francs.

“As we say in French, ‘pour vivre heureux, vivons cache,’” says Jacques de Saussure, managing partner of Pictet: To live happily, live discreetly. “Most clients like to be very discreet because they were born rich or have grown rich, and they know it’s better not to talk about it too much. This principle of privacy or secrecy is very important to them.”

Even so, in March the Swiss government agreed to follow guidelines of the Organization for Economic Cooperation and Development (OECD) on the exchange of information in tax matters, meaning that in the future its banks will turn over names and financial records of clients if foreign governments provide evidence of tax evasion. That will involve renegotiating tax treaties with at least 12 other nations.

Evasion Not a Crime

Previously, Switzerland had cooperated in cases of tax fraud. Now, it will treat tax evasion, which is not a crime in Switzerland, in the same way. Bankers say there should be no “automatic” exchange of information, which they say is what the IRS is demanding.

At least one of the tax treaties is likely to be subject to an up or down vote in a Swiss referendum, for which only 50,000 signatures are required. And three-quarters of Swiss citizens believe the country should preserve its bank secrecy laws, according to a March poll of 1,000 people by the SBA.

The bankers coordinate their message through bimonthly executive board meetings of the SBA, which is headed by Yves Mirabaud’s uncle, Pierre Mirabaud, who is also a senior partner at Mirabaud & Cie. Pierre doesn’t mince words.

“The idea that Swiss banks live from the tax evaders of the world is a Hollywood invention,” he said at a May lunch of the American International Club of Geneva, which brings together ex- pat business executives and their Swiss counterparts. “There’s no ethical conflict between the right of the state to enforce taxation laws on the one hand and respect for financial privacy on the other.”

Club of Bankers

Geneva’s private bankers form a tightly knit club, with some friendships cemented in the Swiss Army officer corps. Geneva is a small city -- population 186,000 -- and smaller still in the affluent precincts surrounding the Rue du Rhone.

Every day, many of the district’s bankers, lawyers and traders gather for lunch at Roberto, an Italian restaurant popular with Geneva’s wealthy since the aftermath of World War II. On a rainy mid-May afternoon, the place is packed with patrons in hand-tailored suits dining on gnocchi and grilled sole.

That evening, some of Roberto’s patrons meet again at the Beau-Rivage hotel on Lake Geneva, where Sotheby’s auctions off a rare blue diamond for 10.5 million francs to an anonymous phone buyer after vigorous bidding.

A Banker’s Life

The bankers can also be found sipping coffee on the terrace overlooking the marina at the Societe Nautique de Geneve, the lakeside yacht club founded in 1872; hitting balls at the Golf Club de Geneve in the wealthy suburb of Cologny; or attending the ballet at the Grand Theatre.

The foundation that runs Geneva’s Museum of Modern and Contemporary Art reads like a who’s who of the private banking establishment. Bernard Sabrier of money manager Unigestion Holding SA is there. So are Pierre Mirabaud; Pierre Darier, managing partner of Lombard Odier; and Pictet partner Philippe Bertherat.

The bankers maintain that Switzerland is being unfairly singled out by the G-20 while offshore centers like Hong Kong and the U.K.’s Guernsey are given an easy ride.

“This whole debate is full of hypocrisy,” Pierre Mirabaud said in his May speech. “It’s a fight for market share, a fight for tax reserves, and the only rule today is that the strongest wins.” Mirabaud will be succeeded by Patrick Odier as SBA head in September.

Germans, Swiss Battle

Such arguments are sophistry, says German Finance Minister Peer Steinbrueck, whose government accuses the Swiss of facilitating criminal behavior.

“There are jurisdictions -- tax havens and nation states -- that not only approvingly accept but deliberately invite German money transfers with the clear intention of committing tax fraud,” Steinbrueck told parliament on May 7. “This is clearly true in the case of Switzerland, and Liechtenstein too.”

Steinbrueck’s comment was part of an ongoing attack by Germany on neighboring offshore centers. Last year, German officials disclosed that their secret service had paid an employee of LGT Group, the bank owned by Liechtenstein’s princely family, 5 million euros ($7 million) for information on German clients.

Germany is investigating about 900 suspects in the tax- evasion probe, and authorities have raided businesses and the homes of wealthy citizens looking for incriminating documents.

Germany and Switzerland have been trading barbs about Swiss bank secrecy for decades. Swiss Foreign Minister Micheline Calmy-Rey twice this year summoned Germany’s ambassador to Bern to complain about Steinbrueck’s comments.

Fueling the Fire

Swiss lawmaker Thomas Mueller fueled the fire in March when he said in a parliamentary debate that Steinbrueck’s attitude reminded him of Germans “who walked the streets in leather coats, boots and armbands 60 years ago.”

Swiss bankers say Germans cross the border to avoid their own country’s draconian tax regime. “Germany has mistreated its entrepreneurs and citizens for decades by constantly shifting the tax goalposts,” says Raymond Baer, chairman of publicly listed Julius Baer Holding AG, leaning over a conference table in his Zurich offices, hung with contemporary Swiss paintings and art installations. “I have many entrepreneurs moving their holding companies to Switzerland because they cannot reliably plan with Germany’s ever-changing tax code.”

If the attack on bank secrecy results in foreigners doing their banking in some other country, that could be dire news for Switzerland, which derives almost 10 percent of its gross domestic product from the industry.

3.7 Trillion Francs Held

There are 330 banks registered in the country, almost 40 percent of them foreign controlled. Swiss banks held 3.7 trillion francs of securities for domestic and foreign clients at the end of March, more than seven times Switzerland’s GDP.

“Swiss banks are not an endangered species, but the world of absolute bank secrecy is behind us,” says Jeremy Jensen, a London-based partner leading the European private banking practice at PriceWaterhouseCoopers. “Private banks need to plan for a tax-transparent world and work to their strengths.”

Swiss banks could lose as much as 20 percent of their assets if the government agrees to surrender details on possible tax dodgers, says Peter Thorne, a London-based banking analyst at equity research firm Helvea SA.

“Banks are not the tax auxiliaries of foreign governments,” says Steve Bernard, managing director of the Geneva Finance Center. “We have a working relationship in Switzerland between the authorities and the citizens, meaning you don’t fear tax authorities knocking at your doors at 4 a.m.”

No Tax Police

One reason the tax police don’t come knocking is that tax evasion is a civil, not a criminal, offense in Switzerland. Even tax authorities must abide by the country’s strict bank secrecy laws when investigating suspected dodgers.

“Criminalizing a large part of the wealth-producing population is not the answer, especially in a world that needs wealth creators more than ever,” Baer says.

Switzerland has been a center of resistance to taxation for centuries. The legend of William Tell is the tale of how a rebellion against a Hapsburg empire tax collector sparked the creation of the Swiss Confederation in 1291. When Protestant theologian John Calvin arrived in Geneva in 1537, he sanctioned the charging of interest as long as it served the public good, helping to turn the city into a banking center.

Rich History

Starting in the late 17th century, Protestants from France began fleeing to Geneva to escape religious persecution. Successive wars and revolutions in Europe made neutral Switzerland a refuge for moneyed exiles from the 18th century onward. Geneva’s major banking dynasties -- the Mirabauds, the Pictets and the Odiers -- all began as trade finance houses in the late 18th and early 19th centuries after the default of loans to French nobility, deposed in the Revolution, ruined their predecessors.

Switzerland enacted its first bank secrecy law in 1934, a year after Adolf Hitler’s government passed legislation making it a crime for Germans to fail to declare money held abroad. It followed years of allegations that French and German authorities had bribed Swiss bank officials to hand over information on account holders.

A major challenge to bank secrecy came in 1996, when Switzerland waived its laws to facilitate the work of the Volcker Commission, a group headed by former U.S. Federal Reserve Chairman Paul Volcker, whose task was to investigate dormant Swiss accounts opened by Jews fleeing Nazi persecution.

Holocaust Settlement

In 1998, Swiss banks, including Credit Suisse and UBS, agreed to a $1.25 billion settlement with Holocaust survivors. In 2001, the SBA published a list of 21,000 holders of Swiss bank accounts with possible links to Holocaust victims.

In 1998, the Swiss government tightened its anti-money laundering rules to prevent figures such as corrupt dictators from depositing ill-gotten gains in Swiss accounts. The new, “know-your-customer” rules were aimed at preventing a repeat of the embarrassing disclosure that Sani Abacha, the late president of Nigeria, had deposited about $640 million in Swiss bank accounts in the 1990s.

Nearly one-third of the Abacha funds were sent to Switzerland from banks in the U.S. and U.K., according to the SBA. Most of the money has been returned to Nigeria.

“Today, Switzerland has some of the strongest rules on client identification in the world,” Yves Mirabaud says. “It’s been impossible for years to open an account in Switzerland without being clearly identified.”

Not My Job

Still, once a depositor’s identity and the source of his money have been confirmed, the bankers say it’s not their job to investigate whether he or she has paid taxes.

“We believe in individual responsibility,” says Eric Syz, founder of Banque Syz & Co., a private bank and asset manager he set up in 1996. “Bankers should not be tax agents. It’s the responsibility of the client to pay his taxes.”

EU and U.S. officials maintain there’s no distinction between tax evasion and criminal tax fraud -- and that was the focus of the argument with Swiss bankers and their government until March.

The Swiss first eased up in 2004, when they signed an agreement with the EU to provide more help in cases where there’s evidence of criminal tax fraud such as the forging of documents.

Then, in 2005, after a decade at the negotiating table, Switzerland adopted the EU Savings Tax Directive, which levies a 20 percent withholding tax on interest income earned by EU citizens who hold accounts outside their home country.

Riddled with Loopholes

The tax is riddled with loopholes: It applies only to individuals, not corporations, and dividend income, capital gains and income from derivatives are exempt. In practice, wealthy clients have many ways to arrange their assets to avoid the tax, Helvea’s Thorne says.

Switzerland finally cracked in the wake of UBS’s abuses. The Zurich-based bank says it sent private bankers not registered with the Securities and Exchange Commission into the U.S. to solicit business from wealthy Americans.

In February, criminal prosecution for facilitating tax fraud was deferred after UBS agreed to release the names of about 300 clients and pay $780 million in fines. The next day, the U.S. government sued UBS to force the bank to disclose the names of 52,000 additional U.S. citizens it alleges hid Swiss bank accounts from the Internal Revenue Service.

UBS insists that disclosing the names would violate Swiss bank secrecy laws.

OECD Guidelines

In March, the government agreed to follow the OECD guidelines, and in June Switzerland and France modified their bilateral tax treaty to conform to OECD standards.

“What matters is how it works in practice,” says PWC’s Jensen. “If foreign tax authorities pass a certain burden of proof, Swiss private banks will release the required information -- but probably piecemeal.”

Swiss banks will continue to go to great lengths to protect their clients’ privacy. That involves the well-ingrained use of code names and nicknames when discussing depositors, bankers say. “If the client’s an industrialist, we might call him the widget manufacturer,” says Pictet’s de Saussure. “We know internally who we’re talking about.”

De Saussure says he recently got a call from an important client who was worried that Pictet had hired someone from his home country. “We try to avoid spreading the names of clients even within the company,” de Saussure says. “People who have well-known names tend to be talked about, and that’s why we need to be especially careful about confidentiality.”

Border Danger

Traveling poses challenges to private bankers worried about keeping the identities of their clients under wraps. In Geneva, many private banks bar their relationship managers from living across the border in France -- a mere 20 minutes from the city center -- because it would pose a security risk if they carried client details past customs officials daily.

About four years ago, Credit Suisse began drawing up detailed manuals for each country the bank operates in, laying out rules for what licenses each relationship manager must hold in order to solicit business. “The compliance burden has tripled,” says Walter Berchtold, 47, head of Credit Suisse’s wealth management business.

Swiss bankers say they can cope with any erosion of bank secrecy. A major chunk of the wealth flowing into banks in Geneva and Zurich in the past five years has been from clients in low-tax countries, such as Russia and the United Arab Emirates, who aren’t trying to avoid taxes at home. Instead, they’re attracted by Switzerland’s rock-solid currency and political stability.

A Safe Haven

“Many clients have come to Switzerland as a safe haven -- not to dodge taxes,” Lombard Odier’s Patrick Odier says. “This tradition of protecting the private sphere attracts more and more clients.”

Lombard Odier has opened offices in Prague and Singapore in the past two years. Mirabaud & Cie. opened a branch in Dubai at the end of 2007 and now has more than 10 relationship managers based there. Pictet is expanding the staff at its Frankfurt office to attract more onshore money from German clients and has expanded its money management business for institutional investors around the world. Julius Baer announced plans in May to split its private banking and asset management units after outflows at its GAM hedge fund unit hurt investor confidence.

Pressured by clients for better returns from their portfolios, Switzerland’s bankers in recent years became entangled in the complex financial instruments being peddled by Wall Street and the City of London. Some are rethinking that strategy in the wake of the market crash.

Risk Appetite

“Clients developed a risk appetite for high returns,” says Alexandre Zeller, CEO of HSBC Holdings Plc’s Swiss private bank. “Today, we’re going back to basics. Clients want to see capital preservation, and banks will adapt extremely fast.”

UBP, a Madoff victim, is keeping tight control of new investment vehicles. In May, the firm created a new macro hedge fund that makes bets based on broad economic trends. The de Picciotto family ponied up 50 percent of the initial investment.

“The advantage of hedge funds is that their remit is in line with private banking because they try to make money and limit the downside,” says UBP Chief Investment Officer Christophe Bernard.

However steeped they may be in their tradition of discretion and secrecy, Swiss private bankers are eminently adaptable. “The world thinks Geneva is on its knees, but I think it’s looking to the next level,” says Sebastian Dovey, managing partner of Scorpio Partnership Ltd., a London-based wealth management adviser. “The Swiss private banking industry has a genetic ability to survive, as it has done for centuries.”

Casualties

That doesn’t mean there won’t be casualties. At the Rolle yacht club on Lake Geneva, de Picciotto says the regatta hasn’t been spared. “There are fewer sponsors these days,” he says.

One of the regatta’s original backers, Nicolas Gonet of Gonet & Cie., sold his boat last year, while Pictet & Cie. partner Jean-Francois Demole dropped out and rented his catamaran to Bertarelli.

After abandoning the race in May for lack of wind, de Picciotto returned in June to find the wind whipping violently on Lake Geneva for the next regatta. His black-and-silver-striped Zen Too finished eighth, while the squalls capsized two of his competitors.

The race was a fitting event in one of the worst years in memory for Swiss bankers.

To contact the reporters on this story: Stephanie Baker in London at stebaker@bloomberg.net; Warren Giles in Geneva at wgiles@bloomberg.net

Last Updated: July 1, 2009 20:00 EDT

Those Damned Derivative Thingies

Those Damned Derivative Thingies

by Chris Clancy
by Chris Clancy
Recently by Chris Clancy: Around With Ludwig

This essay is a story about insurance, or rather, a story about a type of insurance policy which underwent a mutation. This mutation was not spontaneous – it was engineered. It was one of the biggest scams ever perpetrated.

Paradoxically, the problem was that it worked too well and just got too big.

I hope you stay with the story until its denouement. Maybe you’ll be gobsmacked. If it moves you to go out and start looking for suitable lamposts – then it’s understandable.

When a business makes a loan to another party it can insure against the risk of default. This would be prudent behaviour if the lender had concerns about the borrower not repaying everything which was due.

Insurance companies, like all industries, work to a set of fundamental principles. Two of their most fundamental principles are indemnity and insurable interest.

Indemnity simply means that no-one should "profit" from making an insurance claim. Instead, the money received should be enough to restore you financially to the position you were in before the reason for making the claim occurred.


Insurable interest means that you cannot insure something unless you have a legitimate interest in protecting yourself against something bad happening to that thing. So, for example, you can insure your car or the life of your spouse. You cannot, however, insure the car or the spouse of a complete stranger since your only incentive would be the hope that something bad happens to either or both. In fact, you would have a very strong motive for making sure that something bad actually does happen to either or both!

What has the above got to do with the present mess?

Everything unfortunately.

Understanding the gravity of the situation we are now in means getting to grips with the dreaded "D" word – and I don’t mean "Depression" – I mean "DERIVATIVES"! Few understand them. The following quote refers to Gordon Brown:

"He … made the extraordinary confession that as Chancellor he 'didn't know a lot about' sub-prime mortgages – a key banking practice that sparked the economic collapse."

Mention of the ‘D’ word is usually enough to turn most people off instantly – therefore in what follows I have attempted to keep it as brief and clear as I can and to avoid mentioning this heinous word. Instead I’ll refer to them as Gherkins, Sprouts and Bananas.

The current crisis was started by cheap money being kept cheap for too long. It found its way into the housing market where things escalated as a result of government encouragement for lenders to make bad loans. The lenders who made the bad loans didn’t care since they could sell them on to someone else.

The buyers of these loans didn’t care either since they knew the government would bail them out if they got into trouble. These loans were then securitised; in other words, they were divided up into securities (financial instruments) called "Gherkins" and then sold on to the financial industry.

The financial industry then employed very clever people to mix these securities up in all sorts of permutations and combinations. By the time they had finished splicing and dicing, mixing and matching a new generation of financial instrument had emerged – these were called "Sprouts."

Why did they do this?

It was done to hide the fact that many of these securities were based on bad loans. As such they could only attract a "junk" credit rating which made them more difficult to sell on. By combining them with good loans in incredibly complicated mathematical models, using all sorts of weird and wonderful statistical techniques, this new generation of financial instruments could all attract a triple-A credit rating. Obviously this made these things highly marketable.

Sprouts were sold in vast quantities all over the world. The buyers simply looked at the credit rating. They didn’t know how these things were constructed. They didn’t realize that the models were flawed – Austrian economics tells us again and again that predictions involving human action cannot be reduced to mathematical formulae. (If you’re into self-abuse and really want to put yourself through it go here for a simplified example of how to create a Sprout – and more).

Let’s return to the world of insurance.

Organizations which had purchased Sprouts in huge quantities wanted to reduce their risk. Companies like AIG, for example, offered them insurance policies. In return for regular monthly premiums they could insure against their Sprouts going bad. This was quite legitimate since they had an insurable interest – they owned what they were insuring – and would be rightly indemnified in the event of default.

What happened next was that the insurance policies themselves were then securitised and another generation of financial instruments emerged called "Bananas."

These things have been loosely described as "insurance policies." Nothing could be further from the truth! These things had nothing whatever to do with indemnity and insurable interest. The buyers of Bananas were given the mysterious title of "counterparties." Nobody actually knows who they are.

What was their incentive in purchasing Bananas?

Put simply, Bananas were a bet in which the die was loaded in favour of the gambler, or counterparty. They were betting on the failure of bad loans which were purchased and then re-packaged into Sprouts and then sold on! For those in on the scam there was simply no reason to buy Bananas unless they were confident that the sub-prime market would collapse – which it did. They then claimed on their "insurance" policies.

No. Don’t reach for the bottle just yet. You’ll need a clear head for what comes next. Because it actually gets worse.

Just to recap. The housing food chain spawned three types of financial life form – Gherkins (Mortgage Backed Securities), Sprouts (Collateralised Debt Obligations) and Bananas (Credit Default Swaps).

In this must-read article by James Lieber (which I hope you pass on to as many people as possible) he argues that it was Bananas which turned what should have been a recession into a depression – that the failure of the sub-prime market and its concomitant Gherkins and Sprouts by themselves would not have landed us where we are now.

Why?

Because the amount of money which is still out there waiting to be claimed on Bananas is mind-boggling!

How did it become so large?

The answer is the word "replication." One Sprout could be "insured" time and time again. This is why the thing became so large.

Lieber, writing in Jan. 2009, estimated that the Banana liability was in the region of $600 trillion. In fact, Ellen Brown, writing in Sep. 2008, put total trade in Gherkins, Sprouts and Bananas in excess of $1,000 trillion. The latter is called a quadzillion. If so then we’ve made it – not billions or trillions any more – now we’re into quadzillions!

And just where has all this bailout money paid to financial institutions gone? There’s no way of telling because the Fed’s not saying. How much has gone straight into the pockets of the counterparties, whoever or whatever they are?

I pray HR 1207 makes it all the way. Maybe it will yield up the truth about what has been going on – the fact that it didn’t just happen – it was quite deliberate. And let’s be clear, as Lieber points out in his article, it simply could not have been done without collusion between major players.

Is there a way out of this nightmare? Well, call me an optimist, but there must be. If people can devise a system whereby a tiny elite run the world on money created out of thin air, and get away with it, then surely we have the wit to devise a method of neutralising or cancelling these things – of evaporating them into thin air!

Then go after the counterparties who have already received money and prize every stinking penny from their filthy money-grubbing fingers.

This is no conspiracy theory – it’s fact. See here and here for two articles recently published on LRC – laugh or cry, it’s up to you – but we’ve all been conned, scammed, stiffed or any other word you can think of – yet again.

The greatest scam in history has littered the world with banana skins. There’s a lot more slipping and sliding to go before we emerge from this one – if we ever do – and in one piece at that!

July 6, 2009

Chris Clancy [send him mail] is Associate Professor of Financial Accounting at Zhongnan University of Economics and Law in Wuhan, Hubei Province, People's Republic of China.

US chief executives don't have any friends

Rolling Stone gathers no readers at Goldman Sachs

The highly entertaining war of words between Rolling Stone magazine and Goldman Sachs goes on.

You may have heard some of it before but words of this quality are always worth airing one more time.

It was started in a Rolling Stone article by Matt Taibbi in which he described the world's most famous investment bank as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money".

The bank's uber-spinner Lucas Van Prag hit back, calling the article an "hysterical compilation of conspiracy theories".

He went on to ask why Goldman Sachs hadn't been implicated in the shooting of JFK and faking the moon landing.

More to the point he said the bank "rejects the assertion that we are inflators of bubbles and profiteers in busts".

What fun.

You couldn't ask for anything better to liven up the quiet summer months.

The ongoing row has been required reading for everyone in the City, er, apart from the masters of the universe at Goldman Sachs. I hear the Rolling Stone website has been barred by some at the bank.

McKenna not so ingenious with staff

More trouble for Patrick McKenna's Ingenious Media Group.

Just weeks after having to close its stockbroking arm, and in the same week the media investment company released its results, and then released the corrected version again the next day, I learn it has lost one of its senior executives, Sanjay Wadhwani to rival Edge Group.

Never mind, bad things come in threes I suppose.

Friendship that money can buy

So US chief executives don't have any friends, at least according to a review of their Facebook sites by Business Week. Sad, but sadder still is the answer to the problem: buy some.

An Australian company, I won't name it here, has just launched a service selling followers on Twitter. For A$87, or £42, you can buy 1000 followers, for A$3497 you can get a Messiah-like 100,000 followers.

Or you could spend nothing and get a life.

The most dangerous economic experiment

QE just acting as a sugar rush for insolvent banks that deserve to fail

The UK is in the midst of the most dangerous economic experiment for generations. Yet it's the subject of no debate. Since March, the authorities have been using "quantitative easing", or QE. This involves the Bank of England expanding its balance sheet from nothing in order to purchase debt instruments from the market.

The idea is that the proceeds of such sales boost the money supply and kick-start lending. By decreasing the supply of gilts in the market, QE is also meant to push up gilt prices, driving down the yields that determine borrowing costs right across the economy – not least for commercial loans and mortgages.

At this point, people in my position are supposed to explain that QE isn't "printing money". I'm not going to do that. For the only difference between the UK's current policy and Zimbabwe-style economics is that QE involves the creation of electronic balances rather than actual notes.

That last paragraph will have caused a sharp intake of breath among my friends in the higher-echelons of the UK's economics profession. Unable to dismiss me as a "non-economist", they'll say I'm being alarmist – perhaps due to some kind of personality trait.

I would suggest they sit down, turn off their mobile phones, take a cold look at the evidence and then ask themselves if they've got the guts to help expose the madness of the current policy consensus – the debt-funded fiscal boosts, the non-conditional bank bail-outs and, above all, QE.

Over the past three months, the Bank has spent £106bn of QE funny money. By the end of July, it will have purchased the £125bn of assets it has so far been authorised to buy. At this week's meeting of the Monetary Policy Committee, interest rates will be held at 0.5pc. But, with the original QE "pot" almost gone, the Treasury and Bank could well signal there's more to come.

I accept the start of QE caused share prices to rally and business sentiment to improve. But that sugar rush has gone. The harsh reality is that despite the huge inflationary dangers posed by QE, the credit crunch is getting worse.

The Bank of England has more than doubled the monetary base since March, yet mortgage approvals remained at 43,000 in May – consistent with house prices falling at double-digit annual rates. Lending to non-financial companies contracted 3pc last month.

Banks are keeping the QE cash on reserve or lending it to their own off-balance sheet vehicles (the ones stuffed with sub-prime toxic waste). So rather than helping solvent firms and households access credit, QE is re-capitalizing, by the back door, banks that are otherwise insolvent and should be going bust. Gilt yields haven't come down either. The 10-year yield remains where it was before QE began, having been much higher in the interim.

Around a third of the Bank's QE purchases are, anyway, from overseas investors – doing nothing to ease credit in the UK. Such sales by foreigners reflect mounting concerns about the UK's wildly expansionary policy stance and sterling's related medium-term fragility.

As someone who spends a lot of time talking to overseas asset-managers, I can't tell you how often I'm asked: "Liam, why this money-printing? Have your politicians gone mad?" I can only reply that I ask myself the same thing.

There is, in extremis, an argument for QE, but only to buy commercial paper, not sovereign debt. When used to re-purchase gilts, QE allows governments to carry on borrowing like crazy, rather than facing up to the reality the country must balance its books.

When QE was announced, the emphasis was on the commercial debt purchases the authorities would make. In the event, gilts have accounted for a staggering 99pc of the total. That's why QE will inevitably lead to high inflation – whatever nonsense is spouted about "withdrawing the monetary stimulus".

History shows you can't get the inflationary toothpaste back in the tube. That's why price pressures are rising – and gilts yields refuse to fall.

At the outset of QE, the Tories called it "a leap in the dark" – failing to reveal if they backed it or not. Since then, HM Opposition has been silent on a policy that's destroying the last vestiges of this country's policy-making credibility.

Such credibility is what keeps inflation benign and borrowing costs low. By providing a solid macro-economic platform, such credibility is vital if this country is to create the jobs and wealth that will be so important to our citizens in the years to come.

Such credibility, tough to win, is easy to lose. Because of QE, the UK is now losing it – at breakneck speed. Yet those who will form our next government are silent – not yet in power, but complicit in this grotesque policy vandalism.

Related Articles

Royals bargain deals at taxpayers’ expense

July 5, 2009

Royals win ‘sweetheart’ land deals

Prince Andrew has been granted “sweetheart” property deals with the Crown Estate which have made him millions of pounds and secured a rent-free royal residence for his two daughters.

A Sunday Times investigation has found the Crown Estate has been privately offering the royals bargain deals at taxpayers’ expense. The statutory body manages land and property owned by the crown but has an obligation to protect the interests of taxpayers.

The bargains on the royal portfolio include: The sale of the Crown Estate freehold of Andrew’s former marital home, Sunninghill Park, for £12,265 in August 2003. The property was subsequently sold by Andrew for £15m and now lies abandoned. A 75-year lease on Royal Lodge, the Queen Mother’s former home in Windsor Great Park, for £1m. Princesses Beatrice and Eugenie can inherit the lease on the 30-room mansion and live there rent-free until 2078. A 150-year lease for Prince Edward on Bagshot Park for £5m. Property agents say the imposing mansion would have fetched up to £30m on the open market.

The Crown Estate says it took independent advice for the valuations, but special circumstances – such as security issues – mean such properties cannot always get the “highest market value”.

MPs warned this weekend that preferential deals risked undermining the royal family.

“Junior members of the royal family are apparently obtaining substantial financial benefits from sweetheart property transactions with the Crown Estate,” said Ian David-son, a Labour MP and member of the House of Commons public accounts committee.

“All the terms of these deals should now be disclosed.”

The Crown Estate is charged with the environmental stewardship of its land. However, Sunninghill Park, near Ascot in Berkshire, now lies derelict after Andrew obtained the freehold from the Crown Estate and sold it to a Kazakh buyer. “It has been left to rot,” a neighbour said last week.

Bracknell Forest council said it was investigating the property and trying to find out whether there was any requirement to use the Housing Act, under which abandoned homes can be seized by local authorities.

The Crown Estate manages a £7.3 billion land and property portfolio. Although the land and property are owned by the Queen in name, the body is accountable to parliament and returns revenues to the Treasury.

Buckingham Palace said the lease extension for Bagshot Park was at “an agreed market price”. It said the terms of any future lease arrangement for Royal Lodge was confidential.

The Crown Estate confirmed that the Royal Lodge deal meant the lease could not be sold, but could in future years be “assigned to Prince Andrew’s daughters”, Beatrice and Eugenie.

It said there had been “selective” marketing when Edward was offered Bagshot Park and the deal had been checked for value for money. The freehold of Sunninghill Park was sold under normal valuation procedures and there had been “no reason” to keep it.

Understanding Legislative Corruption

Capitolism

Understanding Legislative Corruption

posted by Christopher Hayes on 07/06/2009 @ 12:34pm

Ezra has a smart post up on the mechanisms of influence that the health insurance industry is using to affect the legislative process. "It's Not the Money. It's the Relationships," he says and includes a chart showing the various former Senate finance staffers who've gone to work for the insurance borg.

This is a really crucial point. We have a tendency to understand the economy of influence in DC has almost entirely a product of campaign finance, and the exchange of money. But in my two years here, I've been amazed at how much more powerful establishment social networks are. For another (depressing example) of this phenomenon, check out this item from Sam Pizzigatti's newsletter Too Much:

The Managed Funds Association, the industry trade group, has just hired a well-connected D.C. lobbying firm. How well-connected? Th e firm's newest star lobbyist, Carmencita Whonder, used to serve as the top financial policy adviser for Senator Chuck Schumer, the powerful New York Democrat. Hedge fund managers are hoping Whonder can save the loophole that lets them claim fee income as a capital gain. Ending this bit of tax sophistry, as the White House proposes, would over double the tax due on hedge fund windfalls. In 2008, the top 25 hedge fund managers averaged $464 million each.

Charlie Cray and I wrote about the scandal of the carried interest loop hole last year. If you want to know why it persists, this is more or less why.